2.3.1 Profits Flashcards
Gross Profit
Sales Revenue - Cost of Sales
Operating Profit
Gross Profit - Operating Expenses
Net Profit
Operating Profit - Interest
Gross Profit Margin
Gross Profit / Revenue X 100
Operating Profit Margin
Operating Profit / Revenue X 100
Net Profit Margin
Net Profit / Revenue X 100
Ways to Improve Productivity
- Increasing revenue
- Decreasing unit costs
- Increase efficiency
Increasing Revenue : USP
A - Enable a firm to charge a higher price
D - Expensive to develop a product with a USP and there is no guarantee it will result in increased demand
Increasing Revenue : Changing the Price
A - Changing price can increase revenue
D - Success depends on price elasticity of the product
Increasing Revenue : Promotional Activities
A - Increases demand and therefore sales
D - Adds fixed costs and so firm may lose profit if promotions don’t work
Lowering Unit Costs : Moving to a Cheaper Premises
A - Decreases fixed costs making it easier to make a profit
D - Could damage brand image as customers may view the firm as cheap
Lowering Unit Costs : Using Cheaper Raw Materials
A - Decreases costs making it easier to make a profit
D - Materials could be of lower quality leading customers to go to other better quality rivals
Lowering Unit Costs : Machinery
A - Results in lower unit costs as machines make less mistakes increasing productivity
D - Staff may need training on operating machinery making short-term profits suffer
Increasing Efficiency : Training
A - Training makes workers make less mistakes and reduce wastage resulting in lower unit costs
D - Training is costly to a firm
Increasing Efficiency : Motivating Staff
A - Motivated workforce is likely to be more productive and make fewer mistakes leading to lower unit costs
D - Some schemes to improve motivation can be costly
